How Scottish income tax bands and LBTT change bookkeeping for Edinburgh firms

What to take away

Key findings

Scottish income tax bands and rates for 2025-26 and 2026-27

Scottish income tax applies to non-savings, non-dividend income for Scottish taxpayers. The rates and bands are set by the Scottish Parliament and differ from the rest of the UK. For firms in Scotland, this means payroll software must use the correct Scottish bands.

The bands for both years are shown below. These are the official devolved tax band figures published by the Scottish Government.

The 2026-27 figures match the GOV.UK page on Income Tax in Scotland. Bookkeepers with Scottish clients must update payroll tables each April. The bands are not the same as those for England, Wales or Northern Ireland.

The 45% band is called Advanced and the 48% Top rate applies above £125,140, so payroll tables need all six bands. For 2026-27 the basic and intermediate thresholds rose by 7.4%, to £16,537 and £29,526, so the Intermediate band now starts at £29,527. The top of the Intermediate band (£43,662) and the higher, advanced and top thresholds did not change, so load the figures for the tax year being processed.

Scottish income tax is collected through PAYE for employees. For the self-employed, it is collected through Self Assessment. Bookkeeping practices in Scotland need to know which clients are Scottish taxpayers. That status depends on where the client lives, not where they work.

A Scottish taxpayer is a UK-resident person whose sole or main place of residence is in Scotland for more of the tax year than in another part of the UK, according to the HMRC PAYE manual (rule from 6 April 2016). The status applies for a whole tax year, and it is not possible to be a Scottish taxpayer for part of a tax year, so a mid-year move does not split the year. Bookkeepers should keep evidence of residency in case HMRC asks, and store it under the firm's data protection duties. This is a key bookkeeping adjustment for Scottish firms.

How the Scottish starter, basic, intermediate and higher bands differ from rUK

The main difference is the number of bands and the rates. In Scotland, there are six bands: starter, basic, intermediate, higher, advanced and top. In the rest of the UK, there are three main bands: basic, higher and additional. The Scottish basic rate is 20%, the same as rUK. But the intermediate rate of 21% has no equivalent in rUK.

The higher rate in Scotland is 42%, compared to 40% in rUK. The top rate is 48% in Scotland, compared with 45% for the additional rate in rUK, and the Scottish top rate also starts above £125,140. The thresholds below that are different. For example, the higher rate starts at £43,663 in Scotland, while the rest-of-UK higher rate starts at £50,271.

This means a Scottish taxpayer earning £50,000 pays more income tax than someone in England. On £50,000 of employment income in 2026-27 with the standard Personal Allowance, Scottish income tax is about £8,982, against £7,486 in England: about £1,496 more. This is income tax only, arithmetic from the bands above. Bookkeeping practices in Scotland must calculate this correctly. Payroll software must use Scottish tax tables. If not, employees may underpay or overpay.

For bookkeeping, the difference affects net pay calculations. It also affects budgeting for clients. A client with Scottish taxpayers on the payroll needs to budget for higher tax deductions. This can impact cash flow.

Comparisons between Scottish and rUK bands are common for Scottish firms with cross-border operations. GOV.UK publishes the rUK bands for comparison, and bookkeepers should check them when a client has staff in both.

LBTT: rates, bands and the ADS surcharge for Edinburgh property

Land and Buildings Transaction Tax (LBTT) is the Scottish equivalent of Stamp Duty Land Tax. It applies to property purchases in Scotland, including Edinburgh. Revenue Scotland collects LBTT, not HMRC. This is a key difference for bookkeeping in Scotland.

The LBTT residential rates, as of 1 April 2021 on Revenue Scotland's rates page, are: 0% up to £145,000; 2% from £145,001 to £250,000; 5% from £250,001 to £325,000; 10% from £325,001 to £750,000; and 12% above £750,000. These rates apply to residential property. The page shows no later change, but confirm the rates in force on the transaction date on the Revenue Scotland site.

The additional dwelling supplement (ADS) is an extra charge on the purchase of additional dwellings. It is charged at 8% of the purchase price on contracts entered into on or after 5 December 2024; it rose from 6%, and contracts entered into on or before 4 December 2024 keep the 6% rate. It applies if the buyer already owns a property and is buying another. The ADS applies where the relevant consideration for the transaction is £40,000 or more and is charged on the whole price. It does not apply where the buyer is replacing or selling their only or main residence.

For bookkeeping in Scotland, LBTT and ADS must be recorded correctly. When a client buys a property, the bookkeeper records the LBTT due, including the ADS if applicable. The LBTT return must be made to Revenue Scotland within 30 days of the effective date, and the buyer calculates and pays any tax due at the same time. The ADS is declared in the same return. Penalties and interest may be charged if the return or payment is late.

Worked example: second home in Edinburgh

In this hypothetical example, a client buys a second home in Edinburgh for £300,000 under a contract entered into on or after 5 December 2024. The calculation runs as follows. LBTT on the residential bands is nil on the first £145,000, 2% on the next £105,000 (£2,100) and 5% on the last £50,000 (£2,500), so £4,600. The 8% ADS on the full £300,000 is £24,000. The total due to Revenue Scotland is £28,600.

Bookkeeping adjustments Edinburgh practices make for Scottish taxpayers

Bookkeeping practices in Scotland make several adjustments for Scottish taxpayers. First, they set up separate payroll ledgers for Scottish and rUK employees. This ensures the correct tax bands are applied. Second, they adjust net pay calculations to reflect higher Scottish rates.

Third, they record LBTT and ADS as separate line items in property transactions. Fourth, they keep evidence of Scottish taxpayer status for each employee. This includes residency checks and P45s.

Fifth, they use Scottish-specific software settings. Check each product's current documentation, and make sure the Scottish tax option is selected. Sixth, they reconcile PAYE liabilities with HMRC more frequently. Scottish tax codes can change, so monthly checks are wise.

For clients with property income, bookkeepers should keep LBTT separate from other costs.

These adjustments take time, which affects fees. The cost guide explains how scope and records influence pricing. Scottish firms should also compare bookkeeping, compliance packages before choosing a provider. For fees across the country, see bookkeeping costs in UK cities. If you are unsure whether you need an accountant or bookkeeper, read that guide first. Whichever firm you consider, check it on its professional body's own register.

Payroll, PAYE codes and Scottish taxpayer identification

Scottish taxpayer PAYE codes start with the letter S (HMRC PAYE manual). For example, S1257L. This tells HMRC and the employer that Scottish income tax bands apply.

Payroll software must be updated to handle S codes. Bookkeeping practices should verify that their software supports Scottish tax. If not, manual calculations may be needed. This is risky and time-consuming.

If an employee moves to or from Scotland, check the tax code HMRC issues, because Scottish taxpayer status is set for a whole tax year.

For bookkeepers, payroll reconciliation is essential. Scottish PAYE codes can lead to different tax deductions. The bookkeeper must ensure that the payroll records match the PAYE liabilities. Any discrepancies must be resolved with HMRC. For charity clients, our guide to charity accounting in Scotland covers the separate regulation.

Records, deadlines and HMRC online filing for Edinburgh firms

Records must be kept for set periods under the Taxes Management Act 1970. For a trade, profession or business, alone or in partnership, records are kept until five years after the 31 January following the tax year. For a company, they are kept until six years after the end of the accounting period. In any other case, the period is one year after that 31 January. The Act is quoted as printed in its 30 November 2016 version, so check the current text.

Sole traders and landlords whose qualifying income was over £50,000 on their 2024 to 2025 tax return must use Making Tax Digital for Income Tax from April 2026. Our guide to Making Tax Digital for sole traders and landlords covers the rollout, and the guide to MTD for landlords compares software with using an accountant. Bookkeepers must use compatible software.

Revenue Scotland has its own online tax service for filing the LBTT return, which also declares any ADS. Returns must be filed within 30 days of the effective date. Payment must also be made by then.

For Scottish firms, deadlines are tight. Bookkeepers should set reminders for LBTT, PAYE and VAT in a deadline register. They should also keep digital records for MTD.

When budgeting for bookkeeping, include the cost of software and filing. The budget fees, VAT guide can help. Firms should also consider professional body support, such as ICAEW or ACCA.

Before the year end, run through this checklist:

Common questions

Methodology

Figures come from Scottish Government, GOV.UK and Revenue Scotland pages, HMRC's PAYE manual and the Taxes Management Act 1970 as printed on legislation.gov.uk, read in October 2026, with periods as printed. The residential LBTT bands are quoted from a Revenue Scotland page dated 1 April 2021 that shows no later change, so confirm them for the transaction date. The record-keeping periods are quoted from the 30 November 2016 version of the Act, so check the current text. The HMRC manual pages print no date. The worked examples are arithmetic on those figures: LBTT of £4,600 plus ADS of £24,000 on a hypothetical £300,000 second home (£28,600), and income tax on £50,000 of employment income (about £8,982 in Scotland against £7,486 in England; income tax only, standard Personal Allowance, no other reliefs).

Cite this

Accountant Scout (2026). "How Scottish income tax bands and LBTT change bookkeeping for Edinburgh firms". https://accountantscout.co.uk/scottish-income-tax-bands-lbtt-edinburgh-bookkeeping